Nonresidential Construction Shows Vigor Despite Housing Slump

Nonresidential construction employment eked out a small gain in January, implying that the spending rise of 2007 will continue, said Ken Simonson, chief economist for The Associated General Contractors of America (AGC), in a recent report, commenting on two new economic releases (January payroll employment from the Bureau of Labor Statistics (BLS) and December construction spending from the Census

“Nonresidential construction employment eked out a small gain in January, implying that the spending rise of 2007 will continue,” said Ken Simonson, chief economist for The Associated General Contractors of America (AGC), in a recent report, commenting on two new economic releases (January payroll employment from the Bureau of Labor Statistics (BLS) and December construction spending from the Census Bureau).

According to Simonson, a 3.5% jump in employment of architects and engineers since January 2007 also suggests that nonresidential activity will remain positive. Although total construction employment fell by 27,000 in January (seasonally adjusted), all of those losses occurred in residential building and specialty trades, added Simonson, noting that employment in the three nonresidential categories (nonresidential building, specialty trades, and heavy/civil engineering) edged up 1,300.

“The reality is a good deal better for nonresidential construction employment than BLS indicates,” he said. “Census figures for December show nonresidential construction spending jumped almost 16% from a year earlier, which could only have occurred with a sharp rise in employment. The ‘missing’ employees work for specialty trade contractors — firms that entered the database as residential but are now busy installing wallboard, wiring, and plumbing in schools, hotels, and offices rather than houses.”

Residential spending in December fell 20% from a year before, suggesting residential employment probably fell by roughly 20% as well, or 660,000 jobs, not the 240,000 that BLS counted, explained Simonson. “If these 420,000 ‘residential’ specialty trade contractors were included in the nonresidential workforce, nonresidential construction employment for the past year would show a hefty gain of about 8%,” he said. “That would be consistent with the rise in nonresidential spending that Census reported.”

The Census numbers show growth, mostly at double-digit rates in 15 of 16 nonresidential categories — everything except religious structures, which are closely linked to new housing. “For 2008, I expect continued expansion in power, energy, communication, hospital, and higher education construction, and a modest increase in the nonresidential total, before taking cost escalation into account,” Simonson said. “Unfortunately, materials costs are accelerating again, particularly diesel fuel and steel. States have identified billions of dollars of infrastructure projects that are ready to go if the federal government will supply more funding.”